A term sheet is a crucial document outlining the terms and conditions of a start-up’s investment process. It covers aspects like business valuation, purchase terms, dilution, payment procedures, investor stakes, board meetings, and ESOPs. The components provide insight into the dynamics between founders and investors.
To determine the right amount of information, consider each party’s needs and the business context. Term sheets are generally non-binding, but they set the stage for legally binding agreements. They help start-ups streamline their workflow and negotiations, guiding discussions on pre and post-money valuations, investor contributions, and dilution.
Sharda Balaji, a lawyer, and founder of law firm NovoJuris, offers valuable insights on term sheet components. Sharda has experience as a legal counsel, founder, angel investor, independent director, and trustee.